Recession Looms, But Are We There Yet?

July 29, 2022

By Tim Courtney, Chief Investment Officer

The market has been speculating about a recession over the last several months, and after a crucial week of economic reports, talk of a recession is growing louder. The second quarter, like the first quarter, saw the gross domestic product (GDP) shrink in real terms.

The National Bureau of Economic Research (NBER), a nonprofit group of economists, ultimately determines the start and end of a recession based on the definition of a significant decline across the economy lasting more than a few months.1 However, the NBER will often declare a recession several quarters after it starts, sometimes after it actually ends. Amid this uncertainty, there are three indicators we are watching closely.

  • Consumer Confidence: On Tuesday, the latest consumer confidence survey showed a third-consecutive month of decline, down to 95.7, a 2.7 point decline from June, and the lowest since February of 2021.2 Consumers are concerned about skyrocketing inflation, rising gas and food prices, persistent shortages and supply chain problems, coupled with the threat of a recession. Consumer sentiment is near an all-time low as well, but spending remains fairly strong.
  • Interest Rates: Wednesday, the Federal Reserve (Fed) raised rates another 0.75%,3 marking the fourth rate hike in the last five months. The move comes after inflation continued to soar in June, reaching a 40-year high of 9.1%.4 While the Fed is working to fight inflation, eight of the last nine times the Fed raised interest rates to combat inflation, a recession resulted.5
  • GDP: During the first quarter, we saw a GDP decline of 1.6%,6 and on Thursday, second-quarter GDP data showed a decline of 0.9%.7 Although two consecutive quarters of negative GDP readings is often considered to be the key indicator of a recession, it isn’t a hard and fast rule and won’t automatically trigger the NBER to declare a recession.

Despite these concerns, not all signs point to a recession. For the last four months, unemployment has remained at 3.6%, a 40-year low, with the U.S. adding 2.5 million jobs since the start of the year. That, coupled with strong consumer spending, adds to the complexity of the NBER’s decision.8

Regardless of whether a recession happens now or several months down the line, it will eventually happen in this economic cycle that has been so compressed – a peak, deep contraction, magnified recovery and inflationary slowdown in just over two years.

Thankfully, banks and households are much better capitalized than they were during the last non-pandemic recession of 2008-2009. Additionally, the market has already accounted for a certain level of economic and earnings contraction. If you have questions about how a recession may be affecting your assets, please contact your Exencial advisor.


  1. National Bureau of Economic Research (as of 7/26/22) — Business Cycle Dating
  2. The Conference Board (7/26/22) — Index Fell for Third Straight Month, as Consumers’ View of Present Situation Weakened
  3. U.S. News & World Report (07/27/22) — U.S. Federal Reserve Delivers Second Super-Sized Rate Hike
  4. The Washington Post (6/13/22) — June inflation soared 9.1%, a new 40-year high, amid spiking gas prices
  5. The Hill (7/22/22) — Rising interest rates foreshadow Biden’s recession
  6. CNBC.com (7/26/22) — The numbers show the U.S. economy is at least teetering on a recession
  7. CNBC.com (7/28/22) — GDP fell 0.9% in the second quarter, the second straight decline and a strong recession signal
  8. The Hill (7/26/22) — Why another GDP decline may not mean the US is in recession



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